(Mis-)Predicted Subjective Well-Being Following Life Events

44 Pages Posted: 4 Sep 2015

See all articles by Reto Odermatt

Reto Odermatt

University of Basel

Alois Stutzer

University of Basel - Faculty of Business and Economics; IZA Institute of Labor Economics

Abstract

The correct prediction of how alternative states of the world affect our lives is a cornerstone of economics. We study how accurate people are in predicting their future well-being when facing major life events. Based on individual panel data, we compare people's forecast of their life satisfaction in five years' time to their actual realisations later on. This is done after the individuals experience widowhood, marriage, unemployment or disability. We find systematic prediction errors that are at least partly driven by unforeseen adaptation.

Keywords: adaptation, life satisfaction, life events, projection-bias, subjective well-being, utility prediction, unemployment

JEL Classification: D03, D12, D60, I31

Suggested Citation

Odermatt, Reto and Stutzer, Alois, (Mis-)Predicted Subjective Well-Being Following Life Events. IZA Discussion Paper No. 9252. Available at SSRN: https://ssrn.com/abstract=2655292

Reto Odermatt (Contact Author)

University of Basel

Alois Stutzer

University of Basel - Faculty of Business and Economics ( email )

Peter Merian-Weg 6
4002 Basel
Switzerland
0041 61 267 3361 (Phone)
0041 61 267 3340 (Fax)

HOME PAGE: http://www.wwz.unibas.ch/stutzer/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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